India's growth at 7.9% just a hair behind China.

12/01/2009 5:52 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

India's economy grew at an annual rate of 7.9% in the third quarter of 2009 from the third quarter of 2008.

That's only a tad behind China's 8.9% growth for the quarter.

And it brings the Reserve Bank of India significantly closer to the day when it starts raising interest rates to slow the economy and fight inflation. That would put India in a small group of economies that have recovered from the global economic slowdown enough to start worrying about too much growth.

On December 1, Australia, the first developed economy to raise interest rates, raised benchmark rates again to 3.75%. Economists predict that Australia's central bank will raise rates again when it meets in February.

In the last year the Reserve Bank of India cut interest rates by 4.25 percentage points to 4.5% in an effort to jump start the economy. Well, it worked. The Indian government is now projecting the economy will grow by 7% for the full fiscal year that ends in March 2010.

Inflation in India was just 1.34% in October but the Reserve Bank of India expects the inflation rate to hit 6.5% by March 2010.

Before the numbers most economists had expected the bank to start raising rates in March, but the consensus now is that the first increase will come early in 2010.

India's move to raise rates would just be another step in what economists see as a long period of rising rates as central banks try to get monetary policy back to pre-crisis dimensions. 

By the way, China is projected to show 10% to 11% growth in the fourth quarter of 2009 from the fourth quarter of 2008.

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